HSBC, retailers pull London market lower

Cruise operator Carnival also pressured; Capita Group gains

By

SimonKennedy

LONDON (MarketWatch) — U.K. stocks fell sharply Tuesday as HSBC Holdings PLC slumped for a second session, while retailers also lost ground after HMV Group PLC said it’s in talks to renegotiate loan facilities.

The FTSE 100 index (UKX) declined 58.25 points, or 1%, to end at 5,935.76. Other European markets also ended lower. See Europe Markets.

On Wall Street, stocks had moved broadly lower by the close of London trading, as investors reacted to robust U.S. manufacturing data and Federal Reserve chief Ben Bernanke’s testimony on monetary policy and the outlook for inflation and growth in the largest global economy.

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In London, cruise operator Carnival PLC (CCL) ranked as one of the sharpest decliners, its shares tumbling 5.6%.

UBS analyst Alastair Ryan said a convincing return to loan growth and good momentum on deposits “should have been the raw material for a sustainable growth story.”

Instead, “rampant cost growth and a resolute unwillingness to discuss revenue prospects leave us without confidence in the 2011 outlook,” Ryan said.

HSBC’s shares have traded down 7.5% from their Friday close in London.

Among other banks, Barclays PLC (BARC)
BCS, -2.74%
fell 2.1% after it agreed to buy the credit-card operations of Citigroup Inc.’s
C, +0.47%
Internet-banking arm for an undisclosed sum.

On the upside, outsourcing company Capita Group PLC (CPI) jumped 5.2% as the biggest gainer riser in the FTSE 100. Capita said it’s in talks to lengthen and broaden the scope of a major contract with Zurich Financial Services Group (ZURN).

Associated British Foods PLC (ABF) also gained, up 2.7% after Evolution Securities upgraded the shares to buy from neutral. They had previously fallen more than 20% in the year to date, the broker noted.

Difficult session for retailers

Also Tuesday, some of the weakest stocks in London came from the ranks of retailers, most notably HMV (HMV). Shares of the CD and DVD chain plunged 22% as the small-cap company said it expects to breach some borrowing covenants and is in talks with its banks in order to renegotiate loan facilities.

HMV also said that trading conditions have remained challenging and that pretax profit for the financial year will be moderately below market expectations.

Seymour Pierce analyst Freddie George reiterated a sell recommendation on HMV and said he’d be reducing his forecasts for the company.

George said that, while there’s talk of an offer for the group’s Waterstones division from shareholder Alexander Mamut, HMV shares are “a value trap” and that the company lacks the scale it needs to overcome the immediate structural concerns.

Among other retailers, Kingfisher PLC (KGF) fell nearly 5% after Societe Generale downgraded the home-improvement group to a sell rating from hold.

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